Return on Software: Maximizing the Return on Your Software Investment

Determining Actual Interest Rates

So far we've been treating the interest rate, i, as a known amount. Sometimes you know everything else and you need to find i. Imagine, for instance, that SRS Software invested $12,345 in another company. Eight years later SRS Software sold that investment for $49,639. Asking the question, “What was the actual interest rate on their investment?” is the same as asking, “What would the interest rate at a bank need to have been to match this return on that investment?” The two approaches shown here only work for a single payment and a single income at some later time. The more general solution is shown in the next chapter in the section “Internal Rate of Return, IRR.”

We know the values for P, F, and for n. Given ...